This is part two of a real-life physician couple's risk management update illustrating how significant certain exposures can be and the results of some careful, expert planning.
In my last post, I introduced our two physician couple, Bill and Preeti Deutsch, whose names have been changed for the sake of privacy, and walked you through part one of their planning review and update. As part of the makeover, their old estate plan was significantly updated to meet their current needs. Both their personal and professional liability insurance coverage increased in scope of coverage and dollar amount so that they were better protected against half a dozen likely and recurring risks by a million dollars or more each.
In some cases these issues weren't covered by their current insurance at all (RAC audit, Employment Liability, D&O) and in other cases the coverage limits they did have were dangerously low, like the $50K in data breach/cyber liability included as a rider to their med-mal policy.
Life Insurance: Asset Protection for Your Family and Lifestyle
The family's life insurance coverage was reviewed and improved. Bill had a small amount of complete life insurance and a $2 million, 20 year term policy, purchased not long after their marriage that would soon lapse. Preeti had a half million dollar term policy, similarly nearing the end of its term. We asked the couple to review this coverage with a top financial advisor.
In light of the family's mortgage debt, current savings, future income needs, and one teenager about to graduate from high school and go to an expensive private college and a grade school child in a private school that ran over twenty thousand per year, it became clear that they were both underinsured. The loss of Bill's income in particular could significantly alter their plans for retirement and their children's future.
Fortunately, they were still both young and healthy enough to adequately and affordably insure despite Bill being rated two tiers higher than the last time he bought life insurance due to changes in his age, weight, and other medical underwriting issues. Both spouses added several million dollars in coverage (death benefit) in a combination of additional term insurance to cover them during their peak earning years. They also added a complete life policy that is now being funded as part of a retirement plan that builds a cash value for future income distributions and that is incidentally creditor protected by law.
The result is Bill now has $5 million in total insurance death benefit that could produce additional income of three hundred thousand a year for his family if invested (advisor assumed a 6% rate of return on a safe portfolio) and Preeti has $2.5 million, allowing her to earmark some additional money for her elderly parents care at her death if she pre-deceases them. This gave them both significant peace of mind that Preeti's willingness or ability to work wouldn't make or break their family's future plans if Bill pre-deceases her.
Both physicians had old Disability Insurance (DI) polices that was purchased in the past and didn't adequately cover their actual expenses, let alone match their combined income. They both increased this coverage to a higher level that was closer to their actual fixed personal monthly overhead expense load and I suggested that Bill and his partners worked with a financial advisor to determine if the medical practice they own needed additional coverage like disability overhead expense insurance and key man disability insurance.
The partners and their practice manager determined that they were more concerned about one of the partners being unable to earn and the potential effect on cash flow than a key employee. This was because of the way revenue is generated in their practice and implemented adequate coverage in that area.
In our next installment we will discuss how the physician couples existing assets including the family home, non-qualified savings, and investment income streams are now being better managed and segregated from their personal and professional risk with the right legal tools. We will also cover how the result of this comprehensive upgrade made a multi-million dollar difference in their exposure, allowing them to practice and live without fear.